It doesn’t mean your investment advisor altered anything in your portfolio — the change would simply be the result of new classifications being considered by provincial securities regulators. The idea is to help make funds more comparable.

But the Investment Funds Institute of Canada is railing against the proposed changes that would measure risk based on fund volatility over a 10-year period. The industry association says its member firms will be forced to make an “upward change in the risk classification” for a large portion of their funds, with more than 60% of funds affected at many firms.

“It is clear that this ‘change when nothing has changed’ will be highly confusing … extremely disruptive, and can damage [an] investor’s long-term performance,” IFIC said in a submission to the Canadian Securities Administrators, the umbrella group for the provincial regulators.

Measuring and controlling risk has been a major focus of regulators in the aftermath of the financial crisis of 2008, but the industry is fighting the latest attempt by Canadian regulators to inform and protect investors — particularly against a backdrop of investors benefitting from a bull market in equities.

If the proposed new risk “bands” and labels are adopted, it will lead to a large number of funds being re-labeled with an apparently higher risk category without any material change in the fund’s underlying risk, IFIC said in the submission last week.

“This will lead investors and distributors to believe that the risk has increased, with the likely impact of reduced equity allocations in their investment portfolios, in order to adjust the overall risk ‘back’ to the ‘correct’ level,” according to the fund industry association. “Although such action may on the surface appear to improve outcomes, in effect it would be detrimental to long-term performance of investors.”

The CSA proposal comes at a time when recent stock market performance has some people feeling optimistic about their investments after a lull that followed the financial crisis of 2008. Statistics Canada reported last week that household net worth rose 3% in the fourth quarter, led by a 5.9% gain in the value of equities.

Canadian regulators have taken several steps in recent months to reshape and tweak rules, many of the changes firmly rooted in investor protection. While the Ontario Securities Commission opened access to equity crowd funding this week, other recent changes include stricter guidelines to limit the use of borrowed funds to invest. There are also new limits on investing in private securities without a detailed prospectus document.

But there is some concern that the efforts are creating investing ghettos for those who are perceived to be able to handle losses and those who aren’t. In effect, some investors are being protected from themselves — to the point that some legitimate investing strategies can’t be pursued.

“There is a risk that regulators are taking a cookie cutter approach to suitability,” says John Fabello, a veteran securities lawyer at Toronto law firm Torys LLP.

One example, he says, is that seniors may be restricted from investing in equities, which are perceived as growth vehicles for those who can afford sustained downturns. But that assumes seniors are no longer working, which some may be, and could lead them to invest solely in fixed income products which come with their own risks.

“Rising interest rates sink values of existing bonds and low rates of return generally mean that seniors who want [or] need high income may have to eat into capital,” says Mr. Fabello. “The net result can be worse than [for] an investor in high dividend equities that take a hit due to short term volatility.”

But Neil Gross, executive director of the Foundation for the Advancement of Investor Rights (FAIR Canada), says the changes aren’t as profound as some industry players contend and many have been in the works for a very long time.

“It’s true there’s a lot happening all at once. Maybe from some people’s perspective it’s overwhelming,” he said. But regulation stemming from lessons learned during the 2008 financial crisis is combining with a new embrace of initiatives started by “a whole generation of regulators that have moved on,” Mr. Gross said.

“It’s not a pendulum swinging, it’s more like a dam bursting,” he said.

Still, he said, there is no need for the financial industry to “hit the panic button.”

For example, while the proposed mutual fund risk re-classifications can be expected to have an impact, they won’t necessarily lead to a major overhaul of client portfolios.

“Although each fund’s risk rating certainly is important, it has to be viewed in the context of the portfolio as a whole,” he said. “So if the new methodology shifts the fund into a higher risk category but the portfolio as a whole remains within the bounds of the client’s risk tolerance, we see no need for the client to switch out of that fund just because of the shift.”